Archive for the ‘Paulson’ Category

The liberal backlash against President Barack Obama has begun with many prominent left-leaning economists in the US attacking the administration’s plans to bail out the banks.

Paul Krugman describes the toxic asset purchase plan as “cash for trash”. Jeffrey Sachs calls it “a thinly veiled attempt to transfer hundreds of billions of US taxpayer funds to the commercial banks”. Robert Reich depicts Tim Geithner, Treasury secretary, as a prisoner of Wall Street while Joe Stiglitz says the plan “amounts to robbery of the American people”.

By Edward Luce
FT
On the blogosphere and beyond, Democratic economists accuse Mr Obama – along with Mr Geithner, and Lawrence Summers, the president’s senior economic adviser – of taking dictation from the same financiers who have brought the economy to the brink of depression.

Mr Reich, who was Bill Clinton’s Labour secretary in the 1990s before resigning over the former president’s reluctance to pursue a strong public investment agenda, says that he and his colleagues fear a replay of the Clinton years under Mr Obama.

Mr Reich now talks of the “Paulson-Geithner approach” to demonstrate what he sees as the continuity between Hank Paulson, George W. Bush’s last Treasury secretary, and the current administration. Mr Reich says bank nationalisation is the only answer to today’s crisis.

“Bill Clinton chose to pursue a set of policies that Wall Street agreed with but at the expense of his long-term agenda of boosting public investment,” says Mr Reich. “Bill Clinton’s Wall Street agenda in the end brought America and the world crashing down with it. I hope we are not seeing history repeat itself with Mr Obama.”

Not every Democrat agrees. Brad DeLong, a former Clinton official, says that every banking crisis – barring the Great Depression – has been resolved by government recapitalisation of the banking sector, as Mr Obama is likely to attempt in the near future.

Nor, says Mr DeLong, is it fair to paint Mr Geithner as a creature of Wall Street.

“Hank Paulson is a man who grew up in American finance and cannot imagine a world in which America does well and its financial sector does badly,” he says.

“Tim Geithner, by contrast, is a bureaucrat and a policymaker. He has never pulled down a multibillion-dollar bonus. They are not the same type of people.”

But in reality the division is as much political as economic. Most of Mr Obama’s liberal critics argue he should have gone to Congress already and asked for a lot of money for bank recapitalisation. His defenders say that would be political suicide until the populist mood on Capitol Hill has died down.

“We have to ask ourselves: Do we want to revive our economy, or do we want to punish the bankers?” says Mr DeLong. “I don’t agree that we can do both.”

Over the weekend The Times and other newspapers reported leaked details about the Obama administration’s bank rescue plan, which is to be officially released this week. If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.

By Paul Krugman
The New York Times
This is more than disappointing. In fact, it fills me with a sense of despair.

After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.

And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.

It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.

Let’s talk for a moment about the economics of the situation.

Right now, our economy is being dragged down by our dysfunctional financial system, which has been crippled by huge losses on mortgage-backed securities and other assets.

As economic historians can tell you, this is an old story, not that different from dozens of similar crises over the centuries. And there’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.

That’s what Sweden did in the early 1990s. It’s also what we ourselves did after the savings and loan debacle of the Reagan years. And there’s no reason we can’t do the same thing now.

But the Obama administration, like the Bush administration, apparently wants an easier way out. The common element to the Paulson and Geithner plans is the insistence that the bad assets on banks’ books are really worth much, much more than anyone is currently willing to pay for them. In fact, their true value is so high that if they were properly priced, banks wouldn’t be in trouble.

And so the plan is to use taxpayer funds to drive the prices of bad assets up to “fair” levels. Mr. Paulson proposed having the government buy the assets directly. Mr. Geithner instead proposes a complicated scheme in which the government lends money to private investors, who then use the money to buy the stuff. The idea, says Mr. Obama’s top economic adviser, is to use “the expertise of the market” to set the value of toxic assets.

But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets.

The likely cost to taxpayers aside, there’s something strange going on here. By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they’re doing something completely different. This is starting to look obsessive.

Reporting from Washington — The firestorm over American International Group is spreading beyond executive bonuses, with lawmakers and policy experts now questioning virtually all aspects of the taxpayer-financed rescue package for the insurance giant.

Among other issues, critics are asking why AIG was allowed to use federal bailout money to repay $13 billion in debt obligations to Wall Street powerhouse Goldman Sachs, as well as debts to foreign banks.

Prominent Republicans, joined by some Democrats, suggested that the answer could be found in longtime ties linking Washington to Wall Street.

Former Treasury Secretary Henry M. Paulson was once chief executive of Goldman Sachs, for example, while AIG’s chief executive, Edward M. Liddy, was a member of Goldman’s board. The Treasury official who is in charge of the bailout, Neel Kashkari, is a former Goldman executive.

“Look at where the money went: Goldman Sachs, Paulson’s firm, foreign banks,” Sen. Jim Webb (D-Va.) said Wednesday. “AIG gave more money to foreign banks than we gave in loans to the auto industry.”

“The real outrage over the AIG bailout isn’t executive bonuses, it’s that billions in taxpayer funds intended for AIG have been passed through to benefit foreign banks and Wall Street behemoths like Goldman Sachs,” former House Speaker Newt Gingrich wrote in an e-mail letter to conservatives Wednesday morning.

Gingrich and Republicans on Capitol Hill unleashed their anger on the current Treasury Secretary, Timothy F. Geithner, saying he bore responsibility for being overly generous in providing aid to failed companies like AIG.

Two outspoken House Republicans — Darrell Issa of California and Connie Mack of Florida — called for Geithner’s resignation, saying the AIG bonus controversy on top of existing doubts about the bailout made such a move necessary.

Other Republicans, including the ranking member of the Senate Banking Committee, Alabama’s Richard C. Shelby, offered caustic criticism of Geithner but stopped short of calling for his resignation.

“I’ve been around long enough to know whenever someone tells me I have to make a decision right now, my response is no,” Senator Jim DeMint (R-SC) said. “That clears it up right away and I think more and more the Bush administration and now this administration knows that they’re not going to get a quick reaction out of Congress unless they create crisis and widespread panic. And that’s going to be their M.O. to get Congress to act.”

By Jeff Poor
Business & Media Institute

Another senator, James Inhofe, R-Okla., explained the Bush administration used a similar tactic, under the direction of former Treasury Secretary Henry Paulson, to get the $700-billion TARP bailout bill passed by Congress back on Oct. 4, 2008.

DeMint said some Republicans now regret they voted for the TARP package, even though there is no way to gauge what might have happened had it not been passed.

“I think there’s a lot of buyer’s remorse among Republicans who voted for the bailouts of all kinds last year,” DeMint said. “And, it’s hard to prove that, some of them are saying, ‘It didn’t work out so well, but it’d been a lot worse if we hadn’t.’ It’s hard, it’s hard to argue that unless you know anything about how business works.”

O.K., this issue still belongs to George W. Bush, Hank Paulson and a bunch of stupid and crazy Republicans. But a bunch of Democrats better get it ironed out and fast or they’ll earn a place in stupic and crazy lore…

*******

A massive backlog of bank applications for emergency federal aid has provoked widespread frustration over how the Treasury Department is allocating rescue funds and raised suspicions among executives that political connections are playing a role, industry officials and regulators say.

The delay is pushing bank executives across the nation to lobby their lawmakers, financial groups and friends within the federal government to try to expedite their requests.

“I think there is a suspicion among a large number of our members that it’s who you know rather than the merits of the application,” said Camden Fine, chief executive of the Independent Community Bankers of America. “I don’t know that to be a fact, but I know there is a strong undercurrent of suspicion among my members that you have to have some sort of connection before you get the golden touch or the blessing from Treasury to get money.”

Treasury Secretary Henry Paulson was once clearly to blame. No more….(AFP/Getty Images/File/Mark Wilson)

Since the Treasury announced the program in October to inject federal aid into banks in exchange for equity stakes, about 350 banks have received the money, a fraction of the 1,600 institutions that have asked, according to regulators.

Treasury officials have been secretive about why certain banks received the money first…..

Clearly not an expert in taxes. Can he manage banks, bailout? Timothy Geithner testifies before the Senate Finance Committee on his nomination to be Treasury secretary at the Dirksen Senate office Building in Washington, DC.(AFP/Mandel Ngan)

Rep. Barney Frank chairs the panel that wrote much of the bailout law. (Mannie Garcia – Bloomberg News)

A week ago today the world was shocked when the United Auto workers refused pay and bnefit cuts and the Senate rejected an auto bailout bill. Now the White House is seriously cosidering what is being called an “orderly bankruptcy”….

The Bush administration is looking at “orderly” bankruptcy as a possible way to deal with the desperately ailing U.S. auto industry, Treasury Secretary Henry Paulson said Thursday as carmakers readied more plant closings and a half million new jobless claims underscored the deteriorating national economy.

Too many cars….not enough buyers….

With General Motors, Chrysler and the rest of Detroit anxiously awaiting a White House decision on billions of dollars in emergency federal loans, Paulson said bankruptcy for Detroit automakers should be avoided if possible but that an orderly reorganization may be the best option to keep them from collapsing.

By JENNIFER LOVEN, AP White House Correspondent

“If the right outcome is reorganization or bankruptcy, then isn’t it better to get there through an orderly process?” Paulson said in a speech to a business forum Thursday night in New York.

Paulson said it was too risky to simply let the automakers fail.

“When you look at the size of this industry and look at all those that it touches in terms of suppliers and dealers … it would seem to be an imprudent risk to take,” he said.

President George W. Bush, asked earlier about an auto bailout, said he hadn’t decided what he would do….

The Bush administration is trying to determine whether to push U.S. automakers to file for bankruptcy, or send them government funding that could be worth more than the $14 billion package that was rejected by the Senate.

A brand new Chevrolet is displayed at Santa Rosa Chevrolet December 12, 2008 in Santa Rosa, California. The White House said Monday it was studying options for a bailout of the US auto industry without indicating when an announcement would be made.(AFP/Getty Images/File/Justin Sullivan)
.
In weighing a much larger rescue effort for U.S. auto makers than originally envisioned, the Bush administration faces a complex set of decisions over what terms to seek — including whether to push the companies to file for bankruptcy — and how to raise necessary funds.

The administration is trying to determine how much money it will take to help the car companies, and is discussing a rescue totaling $10 billion to $40 billion or more.

One possible source of funding is the Treasury Department’s $700 billion fund set up to rescue the financial industry. Only about $15 billion remains uncommitted from the first tranche of $350 billion, so the Bush administration could be forced to request the second half to cover the car companies’ needs, people familiar with the situation said.

That likely would compel the administration to outline its plans for a range of other needs, including foreclosure prevention for struggling homeowners and possibly aid for state and local governments. That could spark another confrontation with lawmakers, who are increasingly divided over industry bailouts. Senate Republicans blocked a proposed bailout for the auto makers last week.

With Detroit’s car makers facing bleak short-term prospects due to a collapse in consumer demand for vehicles, the Bush administration was rushing to determine the extent of the companies’ financial problems. Late last week, some officials thought the government might be able to provide as little as $8 billion to tide the companies over until early next year. On Sunday, a person familiar with the situation said the companies’ collective needs could range from $10 billion to more than $30 billion. The administration spent the weekend poring over the auto makers’ books to assess their financial needs.

The Bush administration must also figure out whether, and how, to try to wring concessions from affected parties, including factory workers, dealers and holders of the companies’ debt. Without such concessions, the companies are likely to need cash infusions long into the future, congressional critics say.

The White House tossed out no lifeline for the teetering auto industry Sunday, although President Bush reiterated that he was considering using money from the $700 billion financial bailout fund to provide loans to the carmakers.

“An abrupt bankruptcy for autos could be devastating for the economy,” Mr. Bush told reporters Monday aboard Air Force One during an unannounced trip to Iraq and Afghanistan. “We’re now in the process of working with the stakeholders on a way forward. We’re not quite ready to announce that yet.”

In a photo provided by the Ford Motor Co., the final Ford Expedition is driven off the assembly line as production ends at Michigan Truck Plant in Wayne, Mich., Wednesday, Nov. 26, 2008. The move signals the beginning of the transformation of the auto plant to be retooled as a car plant to begin producing small, fuel-efficient vehicles in 2010. (AP Photo/Ford Motor Co., Sam VarnHagen)

Mr. Bush wouldn’t give a precise timetable but said, “This will not be a long process because of the economic fragility of the autos.”

White House officials said they did not expect to make an announcement Monday. The administration is considering ways to provide emergency aid to General Motors Corp. and Chrysler LLC, which have said they could run out of cash within weeks without federal aid.

Sen. Bob Corker, Tennessee Republican, who blocked legislation that would have provided $14 billion in loans to the automakers, said he had spoken with the White House early Sunday. “I don’t think they yet know what they’re going to do,” he said. Ron Gettelfinger, the president of the United Auto Workers, said the union had not held discussions with the White House.

As if President George W. Bush had his hand stuck after slamming it in a car door, the assembly line is moving and the White House, Treasury and Fed are trying to figure out what to do.

Bush supported and endorsed the Congressional plan, brought down by Senators of his own party last week.

Advocates now want the money to bailout the auto makers to come from the Troubled Asset Relief Program (TARP). But half the TARP money is gone and only about $15 Billion is available for carmakers. Add to that the fact that Congress approved the TARP for purposes other than a “bailout” for auto makers.

The White House could get the money from the Federal Reserve. But this is problematic too: before the Congressional bailout failed, Fed Charman Ben Bernanke alread said the automakers had insufficient collateral (or ample “unencumbered assets”) to secure a $15 Billion loan from the Fed.

In a letter to Senate Banking Committee Chairman Christopher Dodd, D-Conn., Bernanke wrote that any decision about whether to provide financial aid to Detroit is best left to Congress.

A key consideration in letting an auto company draw emergency cash loans from the Fed is whether the company has sufficient collateral or other security to ensure repayment of the loan. “It is unclear whether the auto manufacturers have unencumbered assets of sufficient amount and quality to meet this requirement,” Bernanke wrote.

Federal Reserve Chairman Ben Bernanke

So, President Bush is between a rock and a hard place.

Finally, the sticking point with Republican Senators remains unresolved. They want to know the plans of the automakers and their unions to get the workers’ pay and benefit packages more in line with the pay of their competitors like Toyota.

Bush Administration people are going over the automakers’ books and some announcemnt on a bailout could come ….on Tuesday….

File photo shows assembly line workers on a Toyota Motor’s production line at the company’s Tsutsumi factory in Aichi prefecture, Japan. Commercial rating agency Fitch Ratings have downgraded the auto giant by two notches, warning that in the current slump even the strongest carmaker no longer deserved its top rating.(AFP/File/Toshifumi Kitamura)

Dec. 13 (Bloomberg) — General Motors Corp. moved closer to a possible government rescue as the Bush administration said it may tap a bank bailout fund for financing and GM’s top executive discussed terms with administration officials.

GM Chief Executive Officer Rick Wagoner spoke by telephone with White House Chief of Staff Joshua Bolten and Treasury Secretary Henry Paulson about a short-term plan to keep the automaker solvent, a person familiar with the talks said.

The General Motors logo is seen outside the GM headquarters in downtown Detroit, Friday, Dec. 12, 2008. GM announced it will temporarily close 20 factories across North America and make sweeping cuts to its vehicle production as it tries to adjust to dramatically weaker automobile demand.(AP Photo/Carlos Osorio)

The talks followed a statement by the White House that it would consider using the Troubled Asset Relief Program to help GM and Chrysler LLC following the Senate’s rejection of an aid package the night before.

“Congress has really punted the ball over to the White House,” John Bogle, founder of the $80.6 billion Vanguard 500 Index Fund, said in a Bloomberg Television interview. “That will give them temporary stopgap aid. I do not think General Motors is going to go out of business.”